2017 promises profits for airlines

GENEVA, 9 December 2016: The global airline industry is set to make a net profit in 2017 of USD29.8 billion, according to the latest International Air Transport Association forecast released Thursday.

It forecasts revenues of USD736 billion that represents a 4.1% net profit margin.

This will be the third consecutive year (and the third year in the industry’s history) in which airlines will make a return on invested capital (7.9%).

However, IATA revised slightly downward its outlook for airline industry profitability, this year, to USD35.6 billion (from the June projection of USD39.4 billion) owing to slower global GDP growth and rising costs.

This will still be the highest absolute profit generated by the airline industry and the highest net profit margin (5.1%).

“Airlines continue to deliver strong results. This year we expect a record net profit of USD35.6 billion. Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning USD29.8 billion. That’s a very soft landing and safely in profitable territory. These three years are the best performance in the industry’s history,” said IATA’s director general and CEO, Alexandre de Juniac.

There are numerous challenges and threats that could upset forecasts.

He warned of political, economic and security threats and the constant challenge to control costs.

“We need to put this into perspective. Record profits for airlines means earning more than our cost of capital. For most other businesses that would be considered a normal level of return to investors. But three years of sustainable profits is a first for the airline industry,” said de Juniac.

2017

While airline industry profits are expected to have reached a cyclical peak in 2016 of USD35.6 billion, a soft landing in profitable territory is expected in 2017 with a net profit of USD29.8 billion. On average, airlines will retain USD7.54 for every passenger carried.

Expected higher oil prices will have the biggest impact on the outlook for 2017. In 2016 oil prices averaged USD44.6/barrel (Brent) and this is forecast to increase to USD55.0 in 2017. This will push jet fuel prices from USD52.1/barrel (2016) to USD64.9/barrel (2017). Fuel is expected to account for 18.7% of the industry’s cost structure in 2017, which is significantly below the recent peak of 33.2% in 2012 to 2013.

The demand stimulus from lower oil prices will taper off in 2017, slowing traffic growth to 5.1% (from 5.9% in 2016). Industry capacity expansion is also expected to slow to 5.6% (down from 6.2% in 2016). Capacity growth will still outstrip the increase in demand, thus lowering the global passenger load factor to 79.8% (from 80.2% in 2016).

“Connectivity continues to set new records. We expect nearly 4 billion travellers and 55.7 million tonnes of cargo in the coming year. And almost 1% of global GDP is spent on air transport—some USD769 billion. Air transport has made the world more accessible than ever and it is a critical enabler of the global economy,” said de Juniac.

In 2017, airlines in the Asia-Pacific region will generate a net profit of USD6.3 billion in 2017 (down from USD7.3 billion in 2016) for a net margin of 2.9%. On a per passenger basis average profits are anticipated to be USD4.44.

Capacity offered by the region’s carriers is forecast to grow by 7.6%, ahead of a forecast growth in demand of 7.0%. Improved cargo performance is expected to offset rising fuel prices for many of the region’s airlines. The expansion of new model airlines and progressive liberalization in the region is intensifying already strong competition. In addition profitability varies widely across the region.

2016

2016 will be a record year for industry profitability. The expected net profit of USD35.6 billion is slightly ahead of the USD35.3 billion recorded in 2015, as is the 5.1% net profit margin (slightly ahead of the 4.9% recorded for 2015).